Sinking Sterling Is Going To Suffer Further Setbacks

Intermediate
  • Sterling levelled out on Friday after a slippery week
  • U.K. grew but on a large build of inventories
  • FX markets are focused on the U.S. trade talks
  • Polls show rising risk of a Labour Government
  • Target a summer decline to 1.2536

Sterling pulled back during the course of the week against the U.S. Dollar, closing at 1.3003, (-0.0010 -0.08%). So effectively on the very psychological number of 1.3000.

There have been relatively good economic numbers out of the U.K. e.g. the economy grew by 0.5% QoQ in the first three months of 2019, accelerating from a 0.2% expansion in the previous period and matching market expectations, a preliminary estimate showed.

Chancellor Phillip Hammond has said a rise in wages has been the major contributing factor behind growth of the U.K.’s economy, however, stockpiling ahead of a no-deal Brexit in March also played a role. Despite the healthy numbers the impact of Brexit and the uncertain future tends to weigh heavily on the Pound.

All currencies have been watching the trade talks between the U.S. and China as worries over bad news out of the trade talks has dominated. Such fears will keep the flow of funds into the U.S. Dollar as Treasuries will be bought.

One could suggest that if the market received good news out of those talks then the focus will drift to the positive aspects of the U.K. economy. However, I am of an opinion that with the Brexit uncertainty, the political problems facing both major parties it’s going to be very volatile and very difficult to deal with in the meantime.

I am looking for further dips in the rate for GBPUSD which would be the time to consider picking up Sterling, but that must be under 1.3000.

gbpusd

Source: www.investing.com , Spotlight Ideas

The main trend was down; however, one can see that has levelled out of late. From here the estimated pivot point is at a level of 1.2867 and consolidation below a level of 1.2867 will allow the pair to continue declining to a level of 1.2773 and further below.

One reason why I am bearish on Sterling is that the latest opinion polls show that the Brexit Party are ahead of the rather muddled Conservatives in the polls and that opens the risk that if they made a good showing in a general election it would let the Labour Party into power.

The prospect of a financial transactions tax, plus waves of renationalisation financed by new Gilt issuance …hence new debt will only serve to undermine the value of Sterling.

Summary:

Sell now and again on any opening push toward 1.3080

Target 1 1.2867 … Target 2 1.2701 Target 3 1.2536

Stop at 1.3200

Stephen Pope

Macroeconomic Strategist

Stephen Pope is the Managing Partner of Spotlight Group. He has worked in the world of finance since 1982 and has performed d...continued

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